By The ETF Professor, Benzinga Staff Writer
With Dow component Alcoa's (AA) earnings report after the bell on Monday, another earnings season has officially arrived. Following a glum June jobs report, traders and investors might be looking to corporate earnings reports to lift stocks and spur a summertime rally, but the statistics indicate the rosiest of scenarios are off the table.
As of July 6, 85 S&P 500 constituents warned their results would not meet Wall Street expectations. The quarter's expected earnings growth of 5.8 percent is entirely due to Apple (AAPL) and Bank of America (BAC), according to Reuters.
Bank of America's contribution comes courtesy of one-time gains. The NBA market is back: Nothing but Apple. Even with Apple being the primary driver of S&P 500 earnings once again, a plethora of other companies and sectors will be under intense scrutiny this earnings season. Here are some of the ETF plays that could standout for both good and bad reasons in the coming weeks.
iShares Dow Jones U.S. Technology Sector Index Fund (IYW) The iShares Dow Jones U.S. Technology Sector Index Fund has steadily gained notoriety for one simple reason: It is the ETF with the largest allocation to Apple. Beyond the 23.8 percent weight to Apple, IYW will be in focus this earnings season.
Micorsoft (MSFT), the world's largest software company and 9.5 percent of IYW's weight, has already warned on its upcoming profit report, but dark clouds for IYW may not end there. Last week, BMO Capital cut its 2012 revenue estimates on IBM (IBM) and EMC (EMC) among others. IBM and EMC combine for 11 percent of IYW's weight.
Arguably, Apple will have to do all of the heavy lifting for IYW this earnings season.
Market Vectors Oil Services ETF (OIH) Oil services earnings do not kick into high gear until July 20 when Schlumberger (SLB), the world's largest provider of oilfield services, reports its second-quarter results. It is worth noting OIH (or a rival fund) makes frequent appearances on these ETFs for earnings season lists.
Helmerich & Payne (HP) and Pioneer Drilling (PDC) issued weaker outlooks last week. Halliburton (HAL) (in early June) said rising guar gum prices would suppress second quarter margins.
Add to that, amid surging output and falling prices for natural gas liquids, exploration and production companies are expected to pare their capital budgets, which spells bad news for service providers.
Materials Select Sector SPDR (XLB) Despite the highly cyclical nature of its constituency, the Materials Select Sector SPDR has held up well in recent weeks. A gain of one percent in the past month for an ETF like this is nothing to scoff at given the spate of weak economic data the market has had to digest.
Many of XLB's holdings should be benefiting from lower energy prices, but with the outlook for the global economy tepid at best, this ETF and others like it are being held hostage by macroeconomic headwinds.
If companies such as DuPont (DD), Dow Chemical (DOW) and Freeport-McMoRan (FCX) can provide investors with positive earnings surprises, then the risk-on trade could easily be renewed. Problem is, that is a tough bet to make.
First Trust Consumer Discretionary AlphaDEX Fund (FXD) More so than the rival Consumer Discretionary Select Sector SPDR (XLY), the First Trust Consumer Discretionary AlphaDEX has fallen victim to weak economic data. FXD is down more 1.1 percent in the past month while XLY is up a third of a percent over the same time.
Home to 125 stocks, FXD allocates no more than 1.45 percent to any individual holding. How the ETF weights its component is not a problem. In fact, FXD's methodology would be a selling point in a bull market.
The ETF's downside potential is derived from an almost 26 percent allocation to specialty retail names, an almost 12 percent to hotel and restaurant stocks and a nearly nine percent weight to the auto industry (manufacturers and suppliers). That leaves FXD extremely vulnerable to slack economic data.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.